On November 15, the Act on the top-up tax of constituent entities of multinational and domestic groups (“Pillar 2”) was signed by the President, completing the legislative process in Poland.
The Act implements into Polish law the provisions of Council Directive (EU) 2022/2523 of December 14, 2022, on ensuring a global minimum level of taxation for multinational enterprise groups and large domestic groups in the European Union.
The Pillar 2 regulations will apply to international and domestic capital groups whose total annual turnover is at least 750 million euros in at least two of the four tax years immediately preceding the given tax year.
The newly enacted regulations will affect both the parent companies of the aforementioned capital groups and the subsidiaries of such foreign capital groups operating in Poland (due to the introduction of the qualified domestic minimum top-up tax).
It is estimated that there are as many as 8,000 companies on the Polish market that may be subject to this tax.
The following will be implemented into Polish law: the top-up tax according to the income inclusion rule (IIR), the undertaxed payments rule (UTPR), and the qualified domestic minimum top-up tax (QDMTT).
The draft regulations introducing Pillar 2 are particularly important from the perspective of tax reliefs in force in Poland, which may reduce the ETR below 15% for Polish taxpayers, thus creating an obligation to pay the top-up tax (for entities based in Poland, this will be the QDMTT). The determination of the ETR will be done not at the level of a specific company but at the level of the all entities seated in the country. This will require calculating the proportion of taxes paid by entities from a given jurisdiction (adjusted covered taxes) to the income of those entities (qualified income).
Capital groups whose effective tax rate may be below 15%, for example, due to applied reliefs or preferential tax rates (e.g., IP BOX or R&D relief), should analyze in advance the impact that Pillar 2 will have on them.
What will be the new obligations and challenges associated with the implementation of Pillar 2?
In addition to the potential additional burden resulting from the need to pay the top-uptax, the new regulations will also require companies to fulfil compliance obligations, which may involve the need to collect a large amount of data.
Capital groups covered by Pillar 2 will need to monitor changes in values affecting the calculation of this tax at the jurisdiction level. The magnitude of the challenge is demonstrated by the OECD’s consulted return (Globe Information Return), which requires the collection of over 240 data points relating to various aspects of the group's operations.
The Act comes into force on January 1, 2025. Transitional provisions provide for the optional possibility of retroactive application of the provisions of the law from January 1, 2024.
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